Input Tax may be Charged to Expense or Cost

Q: May input taxes shifted or passed-on to an ROHQ (most of its sales are subject to VAT at 0%) by its local value-added tax (VAT) registered suppliers of goods, properties and services be recognized outright as an expense for income tax purposes, or be added to the acquisition cost upon purchase of the capital asset subject to depreciation?

A: Yes. Since it does not have other sales transactions subject to VAT against which their input taxes may be used in payment, then, it follows, that it is constituted as the final person against which the costs of the tax passed on shall legally stop and rest, hence, in this connection, the said input taxes may already be legally converted as cost available as deduction for income tax purposes.

This treatment shall likewise apply to situations involving input taxes sales already recognized in the books of the ROHQ where:

(1) the two (2) year prescriptive period had already lapsed without any claim for refund or credit having been filed;

(2) the claim for refund or credit was denied or rejected by the BIR for having been filed beyond the 2-year prescriptive period or for non-compliance with invoicing/substantiation requirements; or

(3) a claim for refund or credit is still pending with the BIR but is voluntarily withdrawn by JGC Manila ROHQ.

Provided, that in regard to input taxes attributable to the latter's zero-rated sales which it recognizes outright as an expense or charges to asset account subject to depreciation, as the case may be, (i) the input taxes shifted or passed-on to the ROHQ shall not be recorded as input tax in its books; (ii) the input taxes shifted or passed-on to it shall not be reflected/reported as input tax in its VAT returns; and (iii) the input taxes shifted or passed-on to the ROHQ shall not be claimed by the latter as tax refund or tax credit.

(BIR RULING [DA-(VAT-021) 121-10], July 9, 2010)


NOTE: BIR has new ruling in 2013 reversing this ruling.